Following today’s front-page articlein the Guardian, which warned that universities could be “brought to their knees” by £2.5 billion of Government spending cuts, Left Foot Forward takes a detailed look at the impact of the proposed cuts, on universities, students and fees.

In the last year, the Government has proposed cuts in higher education spending to the tune of £915m: £180m in “efficiency savings” in the 2009 budget, £600m in the most recent pre-budget report, and a further £135m announced by Lord Mandelson just before Christmas.

This reduces the annual budget of the Higher Education Funding Council for England (HEFCE) annual budget from £7.291bn in 2010-11 to £6.376bn in 2012-13 – a 12.5 per cent cutin funding over three years.If the Institute for Fiscal Studies is right in claiming that further higher education cuts of £1.6bn are required for the Government to achieve its target of halving the deficit by 2013, then total cuts will amount to £2.5bn. This is a massive reduction in the amount of money the UK spends in the sector.

As a whole, the UK currently spendsbetween 1.3% and 1.4% of GDP on higher education, less than the OECD average, and well below that spent by the United States at 2.9% of GDP.

To cut funding now will worsen that position as other countries continue to invest in higher education, as Wendy Piatt and Michael Arthur, Director General and Chair of the Russell Group respectively, have today pointed out. This has implications for both the competitiveness of our higher education sector and our economy.

The impact on students will inevitably be huge. Much of the cuts are coming from teaching budgets, which disproportionately hit undergraduate and taught graduate students. Capital funding is also being cut, which means buildings and infrastructure used by students will deteriorate.

Universities are highly unlikely to be able to maintain the current student experience, let alone improve it, if the amount of money they have to spend is so significantly reduced. They just can’t absorb a 12.5% cut in government funding without it badly affecting how students are taught.

Staff-student ratios will worsen, library and teaching resources will be reduced, and there will be increased pressure on the budgets devoted to widening participation in higher education, which will impact on the social mix of the student population at our universities.

Almost as bad will be the impact the cuts will have on the debate about how we fund higher education. In the context of the Browne Review, some universities, like those in the Russell Groupthat have made the news today, may well use the governments’ announcements to press their case for a lift in the cap on tuition fees. Government and many universities are hoping that students will pick up the tab by paying more and more in fees – this will result in students paying more to receive less.

A lift in the cap will burden students with debt; if the government introduces real interest rates on student loans in order to facilitate greater loans for higher fees – which will be necessitated by the national fiscal position – those who borrow the most will pay the most back.

At fees of £7,000, the student who funds their degree through tuition and maintenance loans would leave university with debts of £35,000 and would need to earn £30,000 a year – more than median income – just to pay off the interest on their loans, before they even start paying back the money they borrowed (Broke and Broken,NUS Report, p.7).

That is why Oxford University Student Union and the National Union of Students, among many others including Malcolm Grant, Provost at UCL, are callingfor a change in the way we fund higher education.

We think the government should abolish fees and introduce a graduate tax. Graduates should pay, according to their earnings after university, into a ring fenced national trust for higher education for a period of two decades.

David Blanchflower (former member of the BoE Monetary Policy Committee [MPC]) thinks richer students [students who have rich parents] should pay tuition fees more in line with the market price for education (Link). That is closer to the £30,000 paid by Ivy League students in the US (elite private colleges eg. Harvard, Dartmouth). He wants the cap on tuition fees to be raised from £3,225 p.a. so that better-off students are charged more while (or so that?) financial aid is given to students from poorer backgrounds. An analysis can be found here.

It must be noted that university education has significant positive externalities (social benefits). For instance, if a significant amount of a country’s labour force is university educated,the growth potential of the country should increase. This is because the workforce becomes more productive; being able to produce more with the same resources- a better educated workforce is better able to generate innovations in production and administration which improve productivity. A better educated workforce also increases the flexibility of the economy- if and when a sector of an economy fails, the workforce can transfer quicker to another sector if they are well educated as it takes a shorter time to train [This is very simplistic and requires elastic demand for labour in all other sectors of the economy so wages do not fall and the extra supply of labour can be absorbed]. Flexible economies tend to be resilient to shocks as easy movement of resources to sectors with the best potential for growth works against shocks in any sectors. [Resilience does not mean that recessions or sector failures will not occur, it just means that even if they do, the economy is able to bounce back quicker and stronger than in a less flexible economy].

When looked at with this background, I think it should be plain to see that increased participation in university education (meaningful degrees) should be encouraged and indeed facilitated, for the public good, through loans, grants and price caps among others (as the UK has been doing so far- Thank you, Britannia and Labour of course). This has led to an increase in government university funding of 25% over the last decade. However, with the revenge of the CDO economic crisis
, government bailouts and fiscal stimulus
we have reached a political equilibrium on spending somewhere between savage cuts now or savage cuts later. This has led to the aforementioned cuts and savings in university funding.

With cuts in funding I think it’s only fair that richer members of society should pay a higher price for education so as to subsidise the less well-off. This could leave the amount of “university education” (a good) the same or even raise it from the level it would be if the cuts were imposed at the same time as a rise in tuition fees as these would lead to a fall in participation by students from poorer backgrounds. As a reduction in a public good is harmful (leads to an efficiency loss) to society, anything that would leave the good demanded (and supplied, although this would have to be brought about by other means) unchanged or could raise it is useful.

I think this is a good argument for subsidising poorer students by richer students (I might be biased right now). However, it loses all weight if you’re a fiercely individualistic libertarian (“No such thing as society”- M Thatcher). Then you would believe that whatever is yours cannot and should not be used by others for anything other than your good so you should not be subsidising anyone (Read Nozick’s ‘Anarchy, State and Utopia’ for reasons why whatever you own is fairly yours if it has been traded legitimately etc. as well as arguments against redistribution). However, I believe that part of what makes us human is our ability, even our need to work together and help each other for the good of the collective. Now, while I do not dispute that what everyone owns is theirs and they should be left alone to enjoy it, I do think that the source of everything we own or will own can in some way be traced back to the society we live in, be it respect for property shown by others who do have incentive to steal what we own or the maintenance of the rule of law by the state. In most countries, public provision of primary and secondary education, maintenance/ provision of education standards in both public and private institutions by government and even (until recently in the UK) free university education through grants also show that at least part of what we own cannot be attributed to our individual genius. With this in mind, I think that the haves should help the have-nots so as to improve social welfare (which benefits all).